Update: Arbitration Provision in Trust Enforceable

In Rachal v. Reitz, No. 11-0708, 2013 WL 1859249 (Tex. May 3, 2013), the Texas Supreme Court determined whether an arbitration provision contained in an inter vivos trust was enforceable against the trust beneficiaries. The trust contained a provision requiring all disputes regarding the trust and the trustee to proceed to arbitration. When a trust beneficiary sued the trustee alleging that the trustee violated the terms of the trust, the trustee moved to compel arbitration. The trial court denied the motion; the appellate court affirmed. The Supreme Court of Texas held the arbitration provision was enforceable against the beneficiary for two reasons.

First, the trust settlor determines the conditions attached to her gifts, and courts must enforce trust restrictions on the basis of the settlor’s intent. The settlor’s intent in the Rachal trust was to arbitrate any disputes over the trust. Because the arbitration language was unambiguous, the court was required to enforce the settlor’s intent and compel arbitration if the arbitration provision was valid and the underlying dispute was within the provision’s scope.

Second, mutual assent to an agreement to arbitrate may be manifested through the doctrine of direct benefits estoppel. The doctrine estops a non-signatory to an agreement from accepting benefits under the agreement while simultaneously attempting to avoid the agreement’s burdens. A formal written contract is not required for the doctrine to apply. Thus, the beneficiary’s acceptance of the benefits of the trust and suit to enforce its terms constituted the assent required to form an enforceable agreement to arbitrate. Further, the beneficiary’s claims that the trustee violated the terms of the trust fell within the scope of the arbitration provision. Therefore, the trial court erred by not compelling arbitration because the arbitration provision was valid and the underlying dispute was within the provision’s scope.

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